The TWG was set up by the government shortly after it took office in late 2017 to make recommendations on the fairness, balance and structure of the tax system.
While the CGT was the most significant of the TWG's recommendations, the group's final report included numerous other recommended changes to the tax system, and the government has indicated it will consider including a number of those other recommendations on its tax policy work programme.
The Prime Minister also reiterated that the government would soon release a consultation paper on a digital services tax.
Capital gains tax rejected
The decision not to implement a comprehensive CGT is not unexpected. The junior coalition partner in the government (the New Zealand First Party), whose support would have been required to implement a CGT, had previously voiced its opposition to a CGT. The opposition National Party had also vowed to repeal a CGT if it were enacted.
In rejecting the CGT recommendations, Prime Minister Ardern stated: "It's time to accept that not only has a government that reflects the majority of New Zealanders not been able to find support for this proposal, feedback suggests there is also a lack of mandate among New Zealanders for such a tax also".
She also ruled out a CGT under her leadership in future.
Refreshed tax policy work programme
A refreshed tax policy work programme will be released mid-year. The government is considering the following as high priority for inclusion:
The TWG's recommendations regarding a regime that encourages investment in nationally-significant infrastructure projects;
Allowing depreciation for the costs of seismic strengthening of buildings;
A review of tax loss trading (potentially in tandem with a review of the loss carry-forward rules for companies); and
Strengthening the enforcement of the rules for closely held companies.
Prime Minister Ardern also stated that following the group's recommendations, "the coalition government has agreed to tighten rules around land speculation and work on ways to counter land banking".
New Zealand has a benign tax regime for property investors and speculators that are perceived to have contributed to increasing house prices.
Such investments are not subject to stamp duty or similar transaction taxes, and in many cases, gains on disposal would be a non-taxable capital gain.
As a starting point, the government has directed the Productivity Commission to consider vacant land taxes as part of its review of local government body financing.
Digital services tax consultation
While the TWG did not recommend specific international tax changes, it did note its support for "New Zealand's continued participation at the OECD", and recommended that "the government stand ready to implement a digital services tax if a critical mass of other countries move in that direction".
The government had already acted on that recommendation by announcing, prior to the release of the group's recommendations that New Zealand will proceed with a digital services tax, with a public consultation on "options for introducing a digital services tax" to start soon.
